April 19 (Bloomberg) -- Blackstone Group LP, the world’s
largest private-equity firm, said first-quarter profit fell 24
percent as slower gains in the value of its holdings hurt
performance fees.

Economic net income, a measure of earnings excluding some
costs tied to the firm’s 2007 initial public offering, dropped
to $432.3 million, or 39 cents a share, from $571 million, or 51
cents, a year earlier, New York-based Blackstone said today in a
statement. Analysts had expected earnings of 40 cents a share,
according to the average of nine estimates in a Bloomberg
survey.

Performance fees declined 37 percent to $384.8 million as
fund holdings appreciated at a slower pace compared with a year
earlier, the firm said. Blackstone, led by Chief Executive
Officer Stephen Schwarzman, has led a push among the largest,
publicly traded private-equity firms to reduce reliance on
buyouts, by expanding its fund-of-hedge-funds businesses as well
as its advisory group, which counsels companies on mergers and
restructurings.

“The investment thesis for these stocks rests on the
firms’ ability to gather assets,” Goldman Sachs analyst Marc
Irizarry said in a telephone interview before the results were
released. “We expected to see growth in credit and real estate
following strong performance by both during the quarter.”

Assets Rise

Blackstone fell 4.7 percent, the most in four months, to
$14.14 at the close of trading in New York. The stock has gained
less than 1 percent this year.

The company’s assets under management rose 27 percent from
a year earlier to $190 billion. The increase helped boost
management and advisory fees to $471.7 million from $412.7
million. The firm declared a dividend of 10 cents a share.

Blackstone has $38 billion of unspent committed capital and
has deployed $2.3 billion so far this year, Schwarzman and
Laurence Tosi, Blackstone’s chief financial officer, said on a
conference call.

Blackstone’s credit investment arm, GSO Capital Partners
LP, finished raising $4 billion during the quarter for its
second fund, twice the amount of commitments for its first.

Blackstone is seen as a bellwether for the buyout industry
given its size and reach across markets. KKR & Co., the New York
firm run by Henry Kravis and cousin George Roberts, is scheduled
to report results next week.

Carlyle IPO

Carlyle Group, the Washington-based private-equity firm
preparing to go public next month, oversees about $147 billion.

Private-equity firms pool money from investors including
pension plans and endowments with a mandate to use it to buy
companies within five to six years, overhaul then sell them, and
return funds with a profit after about 10 years. The firms,
which use debt to finance the transactions and amplify returns,
typically charge an annual management fee equal to 1.5 percent
to 2 percent of committed funds and keep 20 percent of profit
from investments.

Worldwide, the value of private-equity deals announced in
the first quarter fell 41 percent to $53.3 billion from a year
earlier, with leveraged buyouts increasing 7 percent to $22.1
billion, according to data compiled by Bloomberg.

‘Europe’s Problems’

“I’m not sure we’re going to have the most favorable
environment for equity offerings in the next few months,” Tony
James, Blackstone’s president, said on a call with reporters
after earnings were released. “The stock market got ahead of
itself in the first quarter and it’s correcting now, and
Europe’s problems are going to become more obvious and it will
continue to correct.”

Private equity has come under a public spotlight this year
by opponents of Republican presidential front-runner Mitt
Romney. The former governor of Massachusetts was also the CEO of
Bain Capital LLC, the Boston-based private-equity firm. Romney’s
opponents have accused him of enriching himself at the expense
of corporations and their employees.

Schwarzman, who co-founded Blackstone in 1985 with Peter G.
Peterson, endorsed Romney last year and held a fundraiser for
the candidate at his Park Avenue apartment. Ranked the 66th-richest American by Forbes magazine, Schwarzman has opposed
raising the tax on the share of profits given to private-equity
managers, known as carried interest, and has endorsed a flat tax
as part of comprehensive reform of the U.S. tax code.

“I expect the industry will take more blows from the
campaign and more particularly from the PACs,” James said,
referring to political action committees. “I’m not looking
forward to it, and I don’t think it’s fair or right.”

James has agreed to hold a fundraiser for President Barack
Obama this spring, according to two people familiar with the
matter, diversifying the political bets for Blackstone.